Russian Culture, Property Rights, and the Market Economy

by Uriel Procaccia

Overview

This book draws a comparison between Western and Russian culture (especially theology, literature and art), and shows the connection between the observed differences in these fields and the expected differences in law, economics, and the political structure. It shows why privatization and a thriving market economy do not succeed in Russia and why it would take more than money to remedy the situation. It predicts that Russia's economic woes are destined to dominate the life of the country for many more years, unless Russian society undergoes a profound, and not necessarily welcome, cultural transformation.

Product Details

ISBN-13:	9780521835060
Publisher:	Cambridge University Press
Publication date:	05/28/2007
Pages:	312
Product dimensions:	5.98(w) x 9.02(h) x 0.83(d)

About the Author

Uriel Procaccia is a professor of law at the Interdisciplinary Center in Israel. He is also a long-term visiting professor of law at the Benjamin N. Cardozo Law School in New York City and a member of the Rationality Center at The Hebrew University of Jerusalem. He previously acted as Dean of the Law School at the Hebrew University of Jerusalem. He has written numerous books in Hebrew including a major work on the theory of corporate law and a major text on the law of bankruptcy and was responsible for drafting a new corporate code for his country, which became binding law in February 2000.

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Cambridge University Press
978-0-521-83506-0 - Russian Culture, Property Rights, and the Market Economy - by Uriel Procaccia
Excerpt

1

Introduction

The General Outline of the Book

In the bleak, dreary December of 1995, well after the introduction of Perestroika and Glasnost, I was invited to teach a short course in Moscow on what was loosely termed “capitalist law.” My job was to initiate my young disciples into such Western ideas as the corporate form, commercial paper, and the other main subjects of lex mercatoria, broadly defined. Having detected many a blank expression among their young, eager faces, I quickly discerned the reason for their consternation: No one ever took the trouble to familiarize them with the fountainhead of all private law – contract. The law school curriculum was saturated, it turned out, with courses about such subjects as public law and criminal law. Private law in general, and contract law in particular, were conspicuously left out. Although the Russian Federation has a new civil code, which includes a hefty section on contract,¹ it does not appear to fare very well within the Russian academic circles. Several of my Russian colleagues (law professors, as it were) had only a very fleeting notion of what contract law might be all about, and an astounding lack ofcuriosity to find out. One could simply not engage them in a meaningful conversation about such a lackluster topic. I then took to the frosty, snow-covered streets of the capital, where a lively, although, by Western standards, primitive private economy was then shaping up. I could not fail to notice that all the transactions that were visible to the naked eye were either barter transactions or “real” (spot) contracts, that is, involving instantaneous exchanges of goods for cash. All cash payments were closely scrutinized for fear of counterfeit. No personal checks were ever accepted as means of payment. Russian banks, it turned out, did not issue checkbooks to their customers. No one, not even luxurious (and immensely pricey) hotels in downtown Moscow would accept travelers’ checks as a means of payment, although both Moscow and St. Petersburg boasted one location each where travelers’ checks could be cashed out by the American Express Company. It then occurred to me that Russian law schools were not interested in coaching their students in the intricacies of contract law, because Russians were not keen to engage in contractual behavior. The state did not encourage contractual behavior by generating tools of commerce (checks, letters of credit, a credible securities market), nor did it establish a good record as an enforcer of broken promises. As I observed the ordinary Russian people in their shops and farms, in their humble sidewalk booths, and in their plush modern establishments, these folks simply did not contract.²

   This does not imply, of course, that some contracts were not being negotiated, signed, and even kept on Russian soil. The country does have some futures markets, where sellers get current consideration in exchange for postponed promises. Trading in oil futures is a good illustration of this necessity. Many commercial enterprises (as distinguished from private individuals) must trade promises to stay afloat the tide. Some major consumer transactions (e.g., buying an apartment or a house) cannot depend on instantaneous delivery of the finished product. Most of these necessary transactions, however, take place either among repeat players or among commercial enterprises. Repeat players are economic actors who repeatedly offer the same kind of goods or services in the same market and depend on their reputation for their long-term survival. Repeat players are constrained to keep their promises regardless of the law’s command, and independently of the willingness of the state to come to the rescue of disappointed promisees. Even in a state of absolute anarchy – “the state of nature” in Hobbesian terms – repeat players would have an incentive to keep their promises and to guarantee customer satisfaction.³ Unsurprisingly, Russian repeat players are commonly engaged in contractual relationships.⁴ Contracts among enterprises, also very common, are of great interest to the outside observer. Following the demise of the socialist regime, it became apparent that the default rate of interenterprise debt was staggeringly high.⁵ The government tried to address this problem by allowing victims of contractual breaches to obtain punitive damages at a daily rate of 0.5% of the value of their claims. When the initial post-Communist hyperinflation was partially arrested, this rate assumed draconian proportions. Everybody, promisors and promisees alike, immediately responded impulsively and lawlessly to this effort to ensure contractual compliance. Promisees delayed their lawsuits to the last day of the statute of limitations, in order to obtain the largest possible penalty, although it was quite unrelated to their actual losses. Promisors simply did not pay the penalties (and, quite often, they did not pay the principal amount of their obligations, either). To force them to comply, the state promulgated a rule that penalties could be levied directly against the bank account of the defaulting enterprise. Numerous enterprises immediately responded by conducting their respective money transactions outside of the banking system. In the end, the state gave up and repealed its imprimatur of punitive damages.⁶ In spite, then, of the numerous contracts that are negotiated, relied on, and even fulfilled in Russia today, Russian contracts, and Russian contract law, still rest on uniquely shaky foundations.

   It is crucial to understand that to opt out of contract is not a trifling matter. The entire market economy is based on contracts. So is the process of privatization, and, indeed, in the Russian context, the hope for a prosperous future, freed from the yoke of a heavy-handed central planner. Obviously, there has never been a conscious decision to opt out of contract, certainly not on the national level.⁷ This stark reality “forced itself,” as it were, on Russian policy makers against their better judgment. As long as this reality lingers on,⁸ however, it is hard to imagine how the Russian Federation can hope to get under way toward its much hoped-for economic recovery.⁹

   But is the Russian aversion to the idea of contract really a permanent feature of the country’s legal culture? Many starry-eyed observers routinely claim that this may not be the case. They point to the fact that during the seventy-odd years of Socialist dictatorship, the ruling Soviet ideology repudiated private property, and the snubbing of contracts could be expected as an offshoot of the broader proposition. According to this point of view, it is only a matter of time until the old lore vanishes, making room, in its retreat, for the revival of secure property rights and of contracts.

   The central theme of this book, however, is that this interpretation of history is both short-sighted and misleading. In my view, the Russian antipathy to contracts is much more deeply ingrained. It reflects a set of values that are as ancient as Christian Russia itself¹⁰ and has its roots way back in the tenth century. While history may teach us that no historical processes are ever irreversible, the transformation of this particular pattern of path dependency may involve a rather radical transformation of the Russian collective psyche and is not likely to transpire anytime soon. The benevolent Western world, which holds its breath in anticipation of the Russian integration into the larger family of contracting nations, with privatized institutions and a vibrant market economy, might have to continue to hold its breath for a long, long time.

   It is not an easy task to identify a set of values or cultural tenets that uniquely characterizes a whole nation. They emerge out of its history, theology, art, and letters. They leave their mark on the spiritual achievements of the nation in science, politics, and war; in this volume I examine a large number of these cultural manifestations; a special emphasis is put on one glaring expression of the Russian spirit, the Orthodox Icon. As will become readily apparent, Russian Orthodox iconography far transcends its own (significant) artistic value. It is, in fact, a window into the Russian soul. Nor is it limited to a theological method of interpreting the world. It contains, in its own microcosmic form, an entire social order. This social order is designed to be immutable and to hold its ground against the changing mores and the ever-frivolous tides of time.

   The normative justification of Western idea of contract is also based on an identifiable set of cultural assumptions. Contracts and icons can be pitted, then, one against the other, with our eyes set for discerning similarities on the one hand and inconsistencies on the other. My point is not that these two cultural constructs are merely different. Different entities can be united in marriage and thrive. The point is that icons and contracts are based on incompatible sets of values. Put differently, I maintain that an “icon society” cannot be, at the same time, a “contract society.” As long as Russia is going to preserve its ancient affinity to the values represented by the Orthodox Icon, the market economy, privatization, and a host of other occidental manifestations of the human spirit will be kept at bay.

   Here is my game plan, which I strive to keep as simple as possible. This introductory chapter contains a short essay on the centrality of the Orthodox Icon in Russian culture.¹¹ It is an essential part of this exploration for at least two reasons. First, I wish to substantiate my claim that icons may be used as credible proxies for Russian culture in general. This claim is certainly not trivial, given the enormous contribution of the Russian genius to world culture in such diverse (and seemingly “Western,” or universal) fields as literature, music, and dance, to name just a few examples. Second, I counter the possible contention that Russian icons are pan-Orthodox in nature as much as they reflect uniquely Russian cultural traits. True, the first icons were originally imported to Russia from ancient Byzantium. Similar icons were either imported to, or crafted in, the other vast territories of the Byzantine cultural sphere of influence, in such regions as Greece, Serbia, Bulgaria, and the Middle East. However, Russia developed, and brought to perfection, a wholly original iconographic style that sets it apart from its Byzantine origin. Serb icons, for instance, or those that remained in the Sinai Peninsula, with all their striking beauty and great spirituality, are decidedly un-Russian. The Russian icon appears to be a uniquely Russian phenomenon.

   In all the ensuing chapters, I pursue a pairwise comparison between the ideas that gave rise to the concept of contract in the West and the cultural substratum – literary, theological, historical, and otherwise – that shines through the Russian icon. I try to detect the intellectual pedigree of each important contractual notion, and then consider its mode of acceptance, or lack thereof, within the Russian culture. The second chapter deals with Western humanism, its impact on the development of contract, and its conspicuous neglect in Russian culture and iconography. The third chapter repeats the same pattern by exploring Western individualism. The fourth chapter stresses the historical submissiveness of the Russian people to a strong central authority, and its relative absence in the West, also an important reason for the observed contractual behavior in the two cultures. The West developed, as is shown in the fifth chapter, a strong inclination to interpret wealth as a value. The Russians have always been of two minds in this matter, as is self-evident in their culture and iconography. This too contributed to the contractual disparities between Russia and the West. Chapter 6 characterizes Western culture, as well as Western law, as based on reason and experience, on man’s rationally motivated inquisitiveness with regard to the phenomenal world. This method of validating propositions left a clear mark on the ascent of contract in the West, but it made only a tardy and faint entry into the Russian scene. The seventh and last chapter characterizes Russian society as an icon society, one that perceives the world through images and through its unique theology of presence. The West, by counterdistinction, has forsaken the predominance of images in its commitment to accommodate the printed word, again a powerful tool in the development of occidental contract doctrine. The book ends with a brief set of concluding remarks. None of the chapters, viewed in isolation, can carry the weight of the entire argument, but the cumulative effect of this comparison yields, it seems to me, an overwhelming landscape of incongruity, inconsistency, and conflict. When the whole evidence is weighed and considered, the argument transforms itself from speculation to certainty. Obviously, the evidence is gleaned from many different disciplines. It rips apart, as it were, the traditional boundaries between law, art, theology, history, economics, and sociology. It is a tall order, I know, but quite necessary, I submit, for understanding the otherwise inexplicable puzzle leading to the failure of contract in modern Russian society.

A Terminological Note About Contract

I wish to clarify on the threshold what I mean by a “contract.” The notion of exchange is almost as ancient as human civilization. Abraham bought a piece of real estate from Heth, which later became his (and the other patriarchs’) site of entombment. The biblical Divinity itself was quite keen on striking agreements, and was notably firm in exacting a harsh price for their eventual breaches. I do not refer to these forms of exchange as “contracts.” As used in this study, the term must include at least the following two attributes. First, the parties must be free to forge their agreement as they wish, without regard to pre-existing forms. For example, a contractual agreement need not correspond to any particular preset prototype (e.g., sale of goods, a real estate lease agreement, or a contract of employment). It can be completely idiosyncratic (a promise to manufacture a five-wheeled car). I refer to this feature of modern contract law as “the freedom to deviate from contractual prototypes.”¹² Second, it need not depend for its validity on simultaneous exchange. This means that “bare” promises should be enforceable, even if the parties intend to fulfill them in the remote future, and even if they are not supported by present consideration. I refer to this feature of modern contract law as the “binding power of bare promises.”¹³

   For the modern Western mind, both of these properties, the freedom to deviate from contractual prototypes and the binding power of bare promises, are more or less taken for granted. But this need not necessarily be the case. Come to think of it, it is not immediately apparent why the state should commit its coercive power to enforce some idiosyncratic private preferences, idly committed by one individual to another.¹⁴ This puzzle is further aggravated when we consider that rather than finish off with their highly personalized set of preferences by an instantaneous exchange, the parties choose to procrastinate, and then to burden the keepers of the peace with the task of enforcing them at great public expense. But these are the vagaries that modern Western contract law goes by,¹⁵ and it is in this sense that contractual behavior is notoriously lacking in Russia today.

Icons, Art, and Ideas

Many Russian (and non-Russian) icons are great works of art. They often radiate a soft translucent air of spirituality that illuminates the object from within and furnishes it with a great sense of serenity and beauty. Nevertheless, icons have never been produced, venerated, or valued for their mere artistic value. In that respect they differ greatly from most other artistic manifestations, whose value is largely attributable to their aesthetic characteristics. A Monet or a Velásquez, for instance, is valued precisely because it stimulates in its viewers an agreeable aesthetic sensation, while the “story” that it tells (say, water lilies resting in a pond, or a young infanta choked in her intricate girdles) is of a decidedly secondary interest.

   This is hardly the case with icons. Icons send messages. These messages encrypt literary missives. They always seem to be making some sort of a statement, to which the viewers are expected to respond in kind. Thus, icons are admitted to the communion of the faithful as active participants with whom the faithful interact. They are valued for what they say and what they do, and for what the people who venerate them say and do to, and with them, rather than for what they simply look like. Icons have always raised a great deal of controversy. Some of these controversies have led to war, want, and misery. None of these wars were waged on aesthetic¹⁶ grounds, for none of the warring factions paid the slightest attention to the beauty (or lack thereof) of the subject of dispute.¹⁷ They were all waged for what the icons were imagined to have said or done, or for what their venerators seemed to have said or done to, or with them. Obviously, the best-known historical example (but by no means the only one) is associated with the so-called iconoclastic wars of the early Middle Ages, which did not terminate until the so-called “Triumph of Orthodoxy” in 843 A.D.¹⁸ The enemies of icons, the iconoclasts, interpreted the material rendering of saintly images as a blatant violation of the Second Commandment. According to their rhetoric, the practice of iconography was in fact heretical and had to be forcibly eradicated as a form of idolatry. True to their doctrine, they actually went ahead and destroyed all the existing icons throughout the Byzantine Empire. The only early icons that were saved from their wrath were the inaccessible ones, notably the large collection in the Saint Catherine Monastery on Mount Sinai. The defenders of icons, the iconodules, far from invoking the redeeming aesthetic value of their objects of veneration, developed an alternative doctrine of their own, proclaiming the saintliness of the images and their redeeming theological value.¹⁹ To be sure, the debate was much energized by hidden political undercurrents. Those secret agendas had very little to do with the theological hair-splitting debates that were raging on the surface. Rather, they concerned an agitated power struggle between the secular rulers of the Empire and the insurgent forces of the Church, who used icon veneration as a means of gathering influence and clout.²⁰ But whether the iconoclastic wars were about theology or about politics, one thing is certain, they were not about art or about aesthetics.

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© Cambridge University Press

Table of Contents

1. Introduction; 2. Humanism; 3. Individualism; 4. Authority; 5. Wealth; 6. Truth; 7. The icon and the word.

Editorial Reviews

"Procaccia's book is a bold attempt to explain Russia's inability to develop an effective capitalist economy, arguing that Russian mentality is rooted in an iconic view of the world - one that denies human individuality and hence the possibility of contract. Procaccia sees 'Eternal Russia’ as trapped in a single mind-set which even Communism failed to dislodge."
Peter Rutland, Wesleyan University, Choice

From the Publisher